Material differences in the way
banks define their risky assets is blinding investors' ability
to make informed choices about where to put their money, a top
regulator said on Thursday.

Material differences in the way
banks define their risky assets is blinding investors' ability
to make informed choices about where to put their money, a top
regulator said on Thursday.

Stefan Ingves, chairman of the Basel Committee, said a
report to be published shortly will confirm suspicions among key
policymakers and top bankers that the methods used - generally
in-house - across the world for measuring risky assets is not
working well enough.

If risks are not measured correctly a bank would not be
holding enough capital to cover losses, leaving taxpayers on the
hook.

The committee, made up of regulators from nearly 30
countries, looked at trading books using data from 15 top banks
and found risks were not being properly reflected.

"The preliminary work suggests we may not have the balance
right in the current set up," Ingves said in speech in Cape
Town.

Jamie Dimon, Chief Executive of JPMorgan has
complained that some rivals -- widely seen as referring to
lenders in Europe -- were gaming the system by attaching
"aggressively" low risk weights to their assets.

The risk weightings are added up using models to determine
the overall amount of capital needed to meet regulatory
requirements.

Ingves said the Basel Committee has found "material
variation" in risk weights for assets held on trading books,
after adjusting for accounting and portfolio differences.

"Certain modelling choices seem to be major drivers of the
variation in risk weights," Ingves said.

This "generally insufficient" public disclosure by banks
left investors in the dark, added Ingves, who is also governor
of Sweden's central bank.

On Thursday, credit ratings agency Moody's said banks in
Spain, Italy, Ireland and Britain may need to set aside much
more money to cover potentially bad loans.

BOE UNHAPPY

The Bank of England's Financial Policy Committee is unhappy
about relying on in-house models used by the biggest banks.

The bank's director of financial stability, Andrew Haldane,
said on Monday regulators were instead slapping extra capital
charges on some types of assets held by banks, such as riskier
commercial real estate.

There could also be "floors" set for capital levels
irrespective of what the models show as the right amount.

Fitch rating agency, meanwhile, backed Haldane's view on
Thursday, when it said British banks could be underestimating
the riskiness of their property loans and may need more capital
to correct this.

Haldane and others say Basel's rules are too complicated and
want a simpler system for determining capital requirements that
does not rely on a bank's own arithmetic.

The Basel Committee is looking at possible solutions such as
improving public disclosure, curbing a bank's choice of model
and more consistent supervision by regulators.

Ingves said more work will be done on how risk weights are
used in a bank's trading and banking books.

The committee will publish a paper looking at the trade-offs
that need to be made if the risk weighting system is simplified
but Ingves said it was "naive" to believe that big banks can be
supervised using simple rules, even with penal settings.

The committee is already looking at so-called effectively
requiring the use of standardized models for adding up risk
weights, raising fears among big banks that the days of their
bespoke versions are numbered.